Political fireworks fly at Land Board over school endowment distribution

Political fireworks flew at the state Land Board this morning, as, for the second time in five years, state schools Superintendent Tom Luna sought to increase the endowment distribution to public schools beyond the recommendation of the Endowment Fund Investment Board. The board is recommending fiscal year 2015 distribution increases to seven of the eight endowments, but not to the largest – public schools – instead holding schools at the $31 million distribution level it’s been held at for several years. The reason: Since the 2010 board decision to give schools a one-time additional $22 million distribution, the reserve fund for the schools hasn’t met the goal of five years worth of payments; it’s now just over three years, and dropped to two years after the 2010 extra payment.

But Luna said the recommendation means departing from the board’s policy of distributing 5 percent of the three-year rolling average of the endowment to the schools each year, and would drop schools next year to about a 4 percent distribution. Aside from the $22 million one-time boost, schools have been held at the $31 million level for five years now, Luna said, even as the number of public school students has grown by 15,000.

“We’ve never had to reduce the balance of the reserve in order to meet distributions,” Luna argued. “And we just went through the worst recession that I think we’ve seen. And now we see a recovery. So I would argue that we should distribute the 5 percent of the rolling three-year average, per our policy. We still increase the amount in reserve in the years going forward. … It would mean an increase in the distribution of about $5.6 million.”

Luna said school districts are suffering now. “I guess what concerns me is that while we’re building our reserve, school districts are depleting theirs, and … many of them have no reserves left at all. They literally go from state distribution to state distribution.”

Luna made a motion to grant the increase, but it died for lack of a second. Gov. Butch Otter said he just heard Luna’s proposal last night. “I’d like to see us delay it at least until the September board meeting,” he said. Luna responded, “I did sent you a letter Friday – I know you were putting out fires.” (You can read Luna's letter here, obtained under the Idaho Public Records Law.)

Attorney General Lawrence Wasden said, “A number of years ago we addressed this issue, and really, it was part of a political ambush that was unleashed on the Land Board. And at that time my view was that we needed to send this matter to the Endowment Fund Investment Board for their analysis and report back to us.” Wasden said for the Land Board to exercise its fiduciary duty to the endowment, as required by the state Constitution, it’s incumbent on the board to get the investment board’s input before making such a decision.

Secretary of State Ben Ysursa recalled “the way we agonized over the $22 million,” and noted that the 2010 extra payment was actually his motion – Luna had wanted more than twice that amount. “I reiterated that was a one-time deviation from the recommendation of the endowment fund,” Ysursa said. “That term ‘one-time’ continues to stick in my mind. But I think the superintendent has raised some good points.” He noted that the 2010 decision was a tense 3-2 vote.

Luna responded, “If I understand the motion, maybe not all the rhetoric that went with it, it’s that we will approve the distributions for all but public schools, and public schools we will set a distribution at our September meeting.” Wasden responded, “That is correct.”

Luna said he’s proposing sticking to the state policy, regarding a 5 percent distribution of the rolling three-year average, not violating it. But Ysursa noted that there’s also a policy targeting 5 years worth of distributions as the reserve level. “We’ve got two competing policies, is what’s going on,” he said.

The board then voted unanimously for Wasden’s motion, putting off the decision on the public school distribution to its September meeting.